Payables

In this lesson

1. 0:00 Understanding trade payables and working capital
2. 1:00 Monetary approach to early payment discounts
3. 2:20 Calculating payables balance changes
4. 3:02 Percentage approach to discount decisions
5. 4:53 Annualising interest rates with AER formula
6. 6:06 Managing foreign currency payables risk

About this lesson

You'll master two practical approaches: the monetary method, which calculates the actual cost and benefit in pounds or dollars, and the percentage method, which annualises the cost of forgoing a discount so you can compare it to your borrowing rate. You'll also explore how exchange rate risk affects foreign payables and why timing matters in credit management. This is essential knowledge for FM, E1, and P2 papers, where working capital optimisation and financial decision-making are regularly tested. The monetary approach teaches you to compare the cost of paying early (including lost finance charges and administration costs) against the discount gained. You'll see how to calculate the change in trade payables, work out the impact on overdraft fees, and determine whether accepting the discount delivers a net benefit. The percentage method goes deeper: it shows you how to calculate the two-month interest rate you're implicitly paying by forgoing the discount, then annualise it using the annual equivalent rate formula so you can judge whether it's worth taking. Throughout, the focus is practical: you'll work through real scenarios with concrete figures, learn when to pay early and when to hold cash, and understand how supplier credit decisions fit into your broader working capital strategy. By the end, you'll confidently evaluate payables decisions and explain your reasoning in exams or at work.

Duration: 7m